Tax deal timeline, and sped up IRS cuts

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Jan 08, 2024 View in browser   By Bernie Becker Presented by JUST KEEP ON WAITING: So remember how there was some urgency to clinch a tax deal by the middle of this month, so that taxpayers could claim any expanded benefits in the upcoming filing season? Well, it doesn’t look like that’s going to happen, as Pro Tax’s Benjamin Guggenheim reports this morning. But why? Essentially, it’s some of the same dynamics that have dogged this potential tax agreement — which would both expand the Child Tax Credit and restore more generous incentives for business — for well over a year now. It’s not that the details of a deal are too difficult, or that Senate Finance Chair Ron Wyden (D-Ore.) and House Ways and Means Chair Jason Smith (R-Mo.) have reached some dead end in their discussions. No, the issue is more that this tax agreement seems to be no more than an afterthought in some circles of congressional leadership — nowhere more so than in the suite of Speaker Mike Johnson, whose GOP conference has focused mostly on border protection and government funding. MORE ON THIS IN A BIT. But first, we thank you once more for coming back for more Weekly Tax. Our question of the day: How much fun is too much fun at a Bass Pro Shop? How do you transport the Mona Lisa? Very carefully we imagine: Today marks 61 years since Leonardo da Vinci’s famous portrait was first displayed in the U.S. — at the National Gallery of Art in Washington. (The Mona Lisa then went to the Metropolitan Museum of Art in New York.) Help us paint the scene. Send your best tips and feedback. Email: bbecker@politico.com, bfaler@politico.com, bguggenheim@politico.com and teckert@politico.com. You can also reach us on Twitter at @berniebecker3, @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax. Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. A message from the American Investment Council: Did you know that private equity primarily supports small businesses? In fact, 85 percent of private equity goes to small businesses — investing in every state and congressional district. Click to watch our video and learn how private equity is the common factor across America.   THIS COULD GET HAIRY: Advocates for expanding the Child Tax Credit had hoped to finish a tax agreement by Jan. 19, the next funding deadline facing Congress, because they otherwise feared that taxpayers would miss out this year on the benefits of a more generous incentive. If history is any indicator, the IRS will want to start the tax filing season within the next couple weeks. And former IRS chiefs now say the current negotiations over a tax bill could lead to a perfect storm, if an agreement is struck during the filing season —putting the agency in the difficult spot of having to update its programming on the fly to account for any changes to the child credit and business tax breaks, while also laying the groundwork for plenty of amended returns to retroactively claim any new benefits. Worth noting: Expanding the CTC in a way that’s never been done before could make for a particularly tricky update for the IRS. But top officials at Intuit, the maker of TurboTax, told Pro Tax last month that they believed it would take them basically no time at all to incorporate any changes that Congress might make to the child credit to their software.   Tune in on Wednesday, Jan. 10, as POLITICO explores Taiwan's upcoming presidential election. Hear from our panel on the potential outcomes to the race and the profound implications for U.S.-China relations depending on who wins. REGISTER HERE.     ABOUT THAT FUNDING DEAL: Both senior Democrats and Republicans appear fairly pleased with the spending deal framework that was announced over the weekend. But make no mistake: Republicans keep getting Democrats to make concessions when it comes to the new stream of IRS funding enacted in 2022’s Inflation Reduction Act. The latest there: This latest deal allows for pulling back $20 billion in IRS funding just in fiscal 2024, or a full quarter of that new funding stream. President Joe Biden and then-Speaker Kevin McCarthy agreed to those $20 billion in cuts as part of last year’s agreement to raise the debt ceiling, but those reductions were supposed to be spread out over 2024 and 2025. For their part, Democrats are swearing up and down that they’ll hold the line against any further chipping away at that extra IRS funding, and basically suggest there is no huge difference between implementing already agreed-to cuts over one year or two. But whether Republicans believe them or not, you can probably expect GOP lawmakers to push for further IRS cuts in future budget deals — and even Democrats’ allies on the outside are getting increasingly worried about how quickly and successfully this new IRS funding aimed at better enforcing tax laws for the rich has been targeted by Republicans. Or put another way, progressive activists believe that Democrats are only rewarding what they see as Republicans’ bad behavior and shouldn’t be surprised when the GOP keeps coming back for more. “There’s every reason for Democrats to expect that if they agree to Republicans’ blackmail over the IRS now that Republicans will demand further leniency for billionaires next year,” said Adam Ruben of the Economic Security Project, which released a statement lashing out at the accelerated IRS cuts with Groundwork Action. And in fact, Igor Volsky of Groundwork Action even called on lawmakers to oppose a spending deal that included the immediate $20 billion in IRS cuts. (To be fair, it’s not just liberal groups that are questioning the wisdom of these IRS cuts — so are more centrist deficit hawks, for instance.) Quick aside: There had been chatter for much of last week about House Republicans seeking to accelerate those $20 billion in cuts. But then on Friday, our Benjamin Guggenheim and Caitlin Emma reported that Johnson’s team wasn’t seeking to push forward the $10 billion in IRS cuts then slated for 2025, and instead wanted to add new spending reductions for the agency on top of what was already scheduled for 2024. In the end, it was the accelerated cuts that ended up in the agreement. ONE LAST THING: Former President Donald Trump plans to prioritize extending the expiring individual cuts from the Tax Cuts and Jobs Act if he's elected again, instead of one of his long-stated goals — further reducing the corporate rate, as Bloomberg reported. That could make for a better and more populist political play, though the TCJA has never proven to be that popular. But on some level, this could also just be Trump and his team bowing to reality — not that campaign tax ideas are always realistic. A second Trump administration would take part in talks next year over the expiring parts of the 2017 tax law, whether Trump wants to or not. It’s far less clear whether there would be an opportunity to cut the corporate rate even further from 21 percent if Trump got another four years in the White House.   A message from the American Investment Council:   Around the World South China Morning Post: “Malaysians fume over new cheap goods tax amid already higher cost burden: ‘can’t even buy underwear.’” Reuters: “Philippines enacts new law that makes paying taxes easier.” Reuters, again: “Italy court clears Maradona of tax evasion years after his death.” Around the Nation Idaho Capital Sun: “State lawmakers seek to limit property tax increases as home values soar.” WVTF: Virginia Democrats “say Youngkin's tax cut proposals aren't happening.” Associated Press: “Arizona lawmakers face big deficit due mostly to massive tax cut and school voucher expansion.”   GLOBAL PLAYBOOK IS TAKING YOU TO DAVOS! Unlock the insider's guide to one of the world's most influential gatherings as POLITICO's Global Playbook takes you behind the scenes of the 2024 World Economic Forum. Author Suzanne Lynch will be on the ground in the Swiss Alps, bringing you the exclusive conversations, shifting power dynamics and groundbreaking ideas shaping the agenda in Davos. Stay in the know with POLITICO's Global Playbook, your VIP pass to the world’s most influential gatherings. SUBSCRIBE NOW.     Also Worth Your Time New York Times: “I.R.S. to Begin Trial of Its Own Free Tax-Filing System.” Washington Post: “The prostitute nudging sex workers to file their taxes.” NPR: “Cities with soda taxes saw sales of sugary drinks fall as prices rose, study finds.” Did you know? The Mona Lisa has been on permanent display at the Louvre in Paris for more than 225 years. A message from the American Investment Council: What does a farmer, a tech company, and an organic candy company have in common? They’re all powered by private equity. 85 percent of all private equity investment goes to support small businesses with fewer than 500 employees. These investments help local companies hire new employees, improve their operations, and grow. In every state across our nation, private equity is empowering American entrepreneurs and small business builders to turn their dreams into reality. Please watch our new “Common Factor” video and learn more.     Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler Benjamin Guggenheim @ben_guggenheim   Follow us

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